Analysis: As boomers age, Harley hunts for younger riders

Customers look at the showroom inventory at Harley-Davidson of Frederick in Frederick Maryland in this October 23, 2012 file photo. Unless the Milwaukee-based company began to attract younger riders and penetrate new markets, analysts warned the waning of its overwhelmingly white, male and middle-aged base would hurt sales in North America, where it still earns two-thirds of its revenue. REUTERS/Gary Cameron/Files

So why was the Milwaukee company quiet last year when by its own numbers it successfully zoomed past a demographic hazard analysts had fretted about for years?

Some background: In a recent interview, a top Harley-Davidson executive told Reuters that in 2012, for the first time in years, the average buyer of the company’s bikes was not a baby boomer.

For a brand defined by the emergence and, lately, the aging of the post-World War II cohort of consumers, that’s a big deal - proof the 110-year-old company is gaining traction with a new generation of riders.

Yet its top global marketing guru, Mark-Hans Richer, continues to insist it’s no biggie - even though investors have long wondered how Harley would survive as boomers, who embraced its bikes as totems of rebellion in the 1960s and 1970s and drove its growth in the ensuing decades, rode off into the sunset.

One top analyst, Robin Farley at UBS Investment Research, suggests the company’s muffled messaging reflects its desire to avoid having the accomplishment examined too closely. That’s because by her calculation the average age of riders is still going up, not down. The company disputes her math but says even if she were correct, a new marketing focus means metrics like average age are less important than in the past.

Farley is skeptical. Average age is important because “that’s ultimately the core customer,” she says. “That’s one of the reasons they don’t want to talk about it.”

BEYOND THE BOOMER THAT BRUNG YA

Harley-Davidson has long known its reliance on an overwhelmingly white, male and middle-aged consumer base would ultimately challenge sales in North America, where it still earns two-thirds of its revenue.

So several CEOs ago, the company began an effort to attract buyers born after 1964. An outreach program was launched to gain favor with women and minorities; products were redesigned.

Harley-Davidson regularly claims the effort has been a success - and trots out supportive research from RL Polk, a leading provider of auto industry data, which shows Harley has been the market leader among riders ages 18 to 34, as well as women, African-Americans and Hispanics, for five years running.

But internal numbers have been hard to find, at least recently. Prior to 2009, Harley regularly reported data on average rider age. It stopped, it says, because the number did not measure the outreach effort - as much about winning over nonwhite, nonmale riders of all ages as about wooing the young.

Harley-Davidson also stopped talking about its boomer problem, analysts say, because it didn’t want to appear to be repudiating the generation that still buys a lot of its bikes but now has a choice of several other brands with the “Made in the USA” cred vying for its dollars.

Still, as the company’s annual shipments to dealers retreated from a record of 350,000 set before the recession to the 259,000 to 264,000 bikes it expects to ship in 2013, investors worried the outreach effort was not working and that Harley-Davidson’s demographic problem was getting worse.

Not so, says Richer. In the interview with Reuters, he said the company’s average buyer is now 47 years old, one year younger than five years ago, and holding steady.

If true, that means that in 2012 the average Harley rider was born in 1965 - the first year of Generation X, according to the Census Bureau’s definition. Given the demographic concerns, that’s huge.

Not everyone is buying it, including Farley, who has covered Harley-Davidson for a decade. She says that until the company stopped routinely disclosing the number, average rider age was rising steadily at a rate of about 6 months every year since at least 1999.

In 2008, Harley-Davidson said its average rider was 48 years old, up from 46.1 in 2004 and 43.4 in 1999, Farley says. Extrapolating from those figures, she believes the current average rider is over 50 and, by definition, still a boomer.

After she published a note based on her calculations, she says a company “senior manager” called her to say she was mistaken - but that the real number was 49 years, 6 months - a boomer still and not the 47 Richer claims.

Spokeswoman Maripat Blankenheim says the unnamed executive misspoke because he did not refer to “the most recent and more accurate database we are using.”

Most analysts accept Harley-Davidson’s claims that the outreach is working. Jamie Katz, an analyst at Morningstar, said that while the company has ”a long way to go“ before it gets back to the shipping rate it hit before the recession, ”What they’ve done on the outreach front is impressive.

“Our biggest concern was that their core consumer - the old white man - was obviously decreasing in size.”

QUEASY RIDERS

The tactics the company has employed to penetrate new markets have ranged from programs at rallies popular with minority riders, to garage parties for women, to redesigns that made the company’s bikes appear more “sinister,” in the words of William Blair & Co analyst Sharon Zackfia.

The plan has hit some potholes along the way. In 2003, Harley-Davidson bought Buell Motorcycle Co, and in 2008 MV Agusta, an Italian motorbike company. The purchases were part of an effort to sell to riders who thought they weren’t yet up to a Harley, said Zackfia.

In 2009, shortly after long-time insider James Ziemer retired as CEO and was replaced by outsider Keith Wandell, Harley-Davidson dumped both bike makers and refocused on its own brand.

It offered souped-up, all-black versions of existing bikes straight out of Batman or graphic novels to kick-start sales to younger riders. Women were enticed with the 883 Low, a lighter, lower-to-the ground model; the V-Rod was meant for boys looking for pulse-racing performance. Buyers were allowed to customize their bikes online and install lucrative add-ons at the factory rather than at motorcycle dealerships, often perceived as forbiddingly clannish.

Katz at Morningstar estimates that outreach customers now account for about one-third of Harley-Davidson’s domestic sales, or nearly 50,000 bikes last year. “It’s really made me rethink the potential of the business,” she says.

Roberta Lamerdin, a 49-year-old small business owner north of Chicago, is one of the new female loyalists.

She never figured she’d ride a motorcycle. She changed her mind a few years back when her husband asked her to pick him up at a Harley-Davidson dealership, where he was having his bike repaired.

While waiting she sat on a Sportster 883 Low, the company’s flagship product in the push to win over women.

She bought it on the spot. Six years later, Lamerdin leads the local “Ladies of Harley” group, helping new women riders get comfortable in the saddle.

“Men just love it,” she said. “Not everybody, of course. Some of the old bikers, the so-called real bikers, don’t like it at all. But too bad.”